Intel (INTC) Halts Share Buyback On Coronavirus Concerns

Intel (NYSE:T) becomes the latest S&P 500 company to bear the brunt of ongoing coronavirus pandemic. Per the 8K filed with the SEC, the chipmaker revealed that it is suspending stock repurchases temporarily on account of the COVID-19 crisis. However, the company will continue its dividend payment plans.

Notably, in October 2019, Intel had announced plans to repurchase shares worth $20 billion over the next 15-18 months. The company noted that prior to the stock buyback suspension announcement; it has repurchased shares worth $7.6 billion in fourth-quarter 2019 and first-quarter 2020.

The semiconductor giant also amended its “Risk Factors” section, adding that the uncertainty around COVID-19 pandemic could hurt its financial position. The company also anticipates that the crisis “will cause an economic slowdown”, and “a global recession.”

Given the rising possibility of recession in 2020, cash is the king for businesses and investors. Further, lower buybacks imply stronger liquidity position allowing room for investment into product development & business, which is the need of the hour. We believe that the decision will aid Intel, currently carrying a Zacks Rank #3 (Hold), to tide over the crisis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Coronavirus Wreaks Havoc on Buybacks

Per the latest report by S&P Dow Jones Indices, during full year 2019, S&P 500 companies spent $728.7 billion in buybacks, down 9.6% from $806.4 billion in 2018. Nevertheless, the figure ranks second highest in the index’s history.

Intel Corporation (NASDAQ:INTC) Price and Consensus

Intel Corporation Price and Consensus

Intel Corporation price-consensus-chart | Intel Corporation Quote

However, the coronavirus crisis has triggered suspension of share repurchase programs and shelving of dividend payouts in 2020.

Markedly, pre-COVID-19 estimates had projected that 2020 share buybacks “would come close to or exceed the $806 billion record set in 2018,” which ranked highest in the index’s history.

As of now, first-quarter 2020 buybacks are expected to decline sharply. In fact, second quarter 2020 buyback scene is anticipated to be “dismal.” For 2020, it is now estimated that stock-buybacks may witness “a complete reversal of the 2018 buyback bonanza.”

Coronavirus Crisis Triggers Stock Buyback Suspension

The coronavirus outbreak has not only claimed human lives but is also wreaking havoc on the global economy. It is affecting global trade, investment, travel and tourism, and supply chain.

To preserve cash and maintain ample liquidity, various companies are resorting to dividend cuts and stock-buyback suspensions. Major Aerospace-Defense player, The Boeing Company (NYSE:BA) scraped its quarterly dividend payments and suspended share repurchase program until further notice, last week.

Notable telecommunication company, AT&T (NYSE:T) also withdrew plans to repurchase $4 billion worth of stock due to the coronavirus pandemic.

Citing the uncertainty regarding the coronavirus pandemic, major U.S. banks, including JPMorgan Chase (NYSE:JPM) , America’s biggest bank by assets, has also suspended share buybacks temporarily.

Companies across the globe are facing unprecedented challenges and taking stringent measures to tackle the crisis. Suspension of production and forced leaves/layoffs and cost cutting are becoming commonplace. Despite policymakers’ best efforts, companies are finding it difficult to stay afloat amid such trying times.

Therefore, amid the coronavirus crisis, many companies might be forced to take rigorous measures for cash preservation. So, until the fog clears, investors should brace for more dividend and share-buyback suspensions.

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